Blank Tape Confounds Grasso Case

By JENNY ANDERSON

Published: June 22, 2005

CORRECTION APPENDED

The legal battle over the compensation of Richard A. Grasso, the former chairman of the New York Stock Exchange, has been a noisy one. Yesterday, it turned, if briefly, to silence.

At a status hearing at New York Supreme Court, lawyers sparred over the fate of a taped interview conducted with H. Carl McCall, the former New York state comptroller and the head of the exchange compensation committee that awarded Mr. Grasso $187.5 million in compensation and paid pension benefits.

A furor over that pay package ultimately led to Mr. Grasso's ouster.

Eliot Spitzer, the New York attorney general, is suing Mr. Grasso, an effort to recover $100 million that he contends was paid to Mr. Grasso in excessive compensation under New York's nonprofit law. (The exchange is currently a not-for-profit organization.)

Mr. Spitzer is also suing Kenneth Langone, who preceded Mr. McCall as chairman of the compensation committee, but not Mr. McCall.

Critics have accused Mr. Spitzer of sparing Mr. McCall because he, like Mr. Spitzer, is a prominent Democrat, and Mr. Spitzer intends to run for governor of New York next year.

But Mr. McCall's lawyer has questioned how his client's comments were used in an investigative report done for the exchange that Mr. Spitzer has used as part of the basis of his lawsuit.

Mr. McCall brought a tape recorder when he was interviewed by the lawyers for the exchange.

Mr. Spitzer's office subsequently subpoenaed the tape in May.

At the status meeting yesterday, Avi Schick, a lawyer for the attorney general's office, told the judge he had still not received the tape.

Mr. McCall's lawyer, William V. Wachtel, responded that the assistant recording the interview had inadvertently not recorded the interview.

Mr. Wachtel produced a document indicating that a recording expert from Owl Investigations Inc. had examined the tapes and found they were blank or erased.

''What we believe, and what we told the S.E.C. a year ago, is that apparently the tapes were never actually created,'' Mr. Wachtel said. ''The recording never worked.''

While not a target of Mr. Spitzer, Mr. McCall is being sued -- by Mr. Grasso, who denies the allegations in Mr. Spitzer's lawsuit. While Mr. Grasso's lawyers argue that his pay was awarded by a willing board, his suit contends that if responsibility is to be pinned on someone, it should be pinned on Mr. McCall, who was in charge of briefing the board as to the final pension benefits award of $187.5 million.

Demanding the tapes allows Mr. Spitzer to look tougher on Mr. McCall while also providing potential fodder for the case against Mr. Grasso.

Mr. Spitzer's spokesman denied any such motivation. ''The decision to name people in the lawsuit revolved around who was responsible for and who took an active role in deceiving the board, not those who were deceived,'' said Darren Dopp, Mr. Spitzer's spokesman. ''There was never any evidence that Mr. McCall actively deceived the board or actively withheld information from the board.''

As part of an investigation into how the board came to approve such a large compensation package, John S. Reed, who succeeded Mr. Grasso as chairman, commissioned the law firm of Winston & Strom to do an independent report, called the Webb report after Daniel Webb, the lawyer in charge of completing it.

As part of that report, Mr. Webb interviewed dozens of past board members about their knowledge of Mr. Grasso's pay and the functioning of the board. Past boards have included Goldman Sachs's chief executive, Henry M. Paulson Jr.; the media executive Mel Karmazin; and Mr. Langone.

Mr. McCall asked that his own interview be taped.

Mr. Wachtel lamented the loss of the tape. ''In retrospect, I'm sorry that we don't have the tapes because what was said and what is portrayed are not necessarily entirely consistent,'' he said. ''We will prove it otherwise.''

Correction: June 23, 2005, Thursday
An article in Business Day yesterday about the New York attorney general's efforts to obtain a tape of an interview given by H. Carl McCall, the former chairman of the New York Stock Exchange's compensation committee, as part of a lawsuit over the pay of the former chief executive of the Big Board, Richard A. Grasso, misstated the name of the law firm commissioned to do a report on his compensation. It is Winston & Strawn, not Strom.